Retail Sales Weaker Than Expected

Today's retail sales report for the month of September came in weaker than expected, driven primarily by weakness in the sales of Autos. As shown to the right, the headline reading for September declined 0.1% month/month compared to expectations of no change. Ex Autos, the September report was inline with expectations. While weakness in Autos drove down the overall reading, we would note that the decline was more likely due to the early Labor Day holiday than any real fundamental weakness in the market for cars.

The table to the right breaks down today's retail sales report by each of the individual categories. Here again, you can see how weakness in the auto sector dragged down the whole number. Of the thirteen categories, ten actually showed month/month increases in September, while only three declined. Autos were by far the largest drag as sales declined 2.2% versus August. Clothing was also a notable laggard with a decline of 0.53%, and it helps to explain why the stocks of apparel retailers have had such an awful summer.

Of the ten categories that showed increases in sales in September, Bars and Restaurants saw the strongest growth (+0.94%), followed by Food and Beverage Stores (0.85%), and Electronics and Appliances (0.67%). With regards to the Electronics category, much of the growth is due to the release fo the iPhone 5s, and given that the phone was released late in September (9/20), some of that strength is likely to flow into October as well.

Over the years, we have regularly updated readers regarding the 'bricks to clicks' trend whereby traditional retailers have been losing sales to online retailers. To highlight this, the first chart below shows the total share of retail sales that comes from non-store retailers (online). In the mid-1990s, this category accounted for less than 5% of all retail sales. This month, the sector accounted for 8.9% of total sales, which is the highest total on record.

(Click to enlarge)

While most sectors have been negatively impacted by the rise of online retail, no sector has been hurt more than Electronics and Appliances. As shown in the chart below, this sector has seen its share of total sales decline from 2.6% in 2008 down to 2.0% this month, and that's after the launch of the iPhone 5s. While Best Buy (NYSE:BBY) has rebounded in 2013 after some big declines in 2010, 2011, and 2012, they don't call it the showroom for Amazon for nothing.

(Click to enlarge)

Along with Electronics and Appliances, another sector that has recently been losing share at a rapid pace is General Merchandise. That sector has seen its share of total sales drop from just under 15% in 2008 down to 13% today. Part of the reason for the decline is undoubtedly due to the fact that consumers cut back spending on all but the essentials during the financial crisis, which helped increase the share of General Merchandise retailers. As the economy has recovered and spending increases, though, other sectors have seen their share pickup even as spending on general merchandise remains relatively constant. Another contributor to the decline in share of total sales, though, is likely due to the rollout of Amazon Prime. If consumers can order basic items online with free shipping instead of going to the store, why not save the trip?

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